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Two weeks ago I shared this post, You Need a Budget, and discussed the difficulties I was having as someone who has an irregular income. After some research and trial and error I have come up with a method that seems to be suiting me well. It is basic and very flexible as you will see, but it works. I imagine it will change over time but it is definitely a good start. These are my thoughts on beginning a budget.
Beginning a Budget
To get the ball rolling I did a lot of reading on different methods used by bloggers, authors and other financial advisers. For those of you who, like me, have an irregular income you will find that trial and error is the only way to discover what really works for you personally. You need an adjustable budget that shifts with good and bad months of income.
Some months will naturally pay better than others. This can make even the simple act of writing a standard income figure nearly impossible. A good place to start would be to find your income average from the last 12 months. This will give you a fair guideline amount to work with.
As a starting point, no matter your income type, I would highly recommend the Total Money Makeover by Dave Ramsey and more specifically his app called Every Dollar. This app allows you to set up your budget as well as keeping track of your baby steps. This is ideal if you’re on a debt free journey!
Tracking my Income
Most of my freelance clients pay within a couple of days to one week of an invoice being sent. It is therefore possible for me to plan for my income around one or two weeks in advance of payment. I simply keep a running note of work in progress or work due to arrive and an estimate of the payment date for that project. All of my invoices are stored in one place, meaning that I always have an idea of what’s due.
As an example, in one week I might invoice for three different projects which come to a total of £450. I know they will be paid into my account in three days time as this is the agreement with my client. This total is now an income value that I can use to handle my outgoings.
There is always a risk of payment problems and delays can happen. As I work with such a short window, numbers can rise and fall quickly. This is why I recommend having an emergency fund in place. If a bad month happens, I’m not in a panic.
My method of keeping track of my income is very basic and lacking in sophistication, but it seems to work.
Tracking my Outgoings
My budget is split into two types of outgoings that I need to keep track of. There are the set outgoings such as bills, my car insurance, my phone and my loan payments which are defined amounts withdrawn on certain dates. These don’t change and so they are straightforward to track.
I always have a note of these payments in my diary to ensure I never forget them. I also keep a note on my phone of the next payment due, which I update each time a payment is made. This is just an extra measure I take to make sure that I am always on top of things and nothing takes me by surprise.
Collectively, my personal set monthly outgoings come to just short of £450. As part of my budget strategy I therefore always keep £500 available in my account. This gives me piece of mind knowing that everything is covered. When some money goes to a bill and the total drops, I top it back up to £500.
For the not so regular outgoings, my approach is very simple. I think before I do. These outgoings are normally made up of things like nights at the pub, popping to the shops and trips home to Glasgow. Budgeting money for these is all about staying in control and planning ahead.
Take a trip home to Glasgow for example. I normally plan these a month or so in advance. I know that petrol for my drive normally comes to £60 for a round trip. This can be a lot of money when it has been a slow month. Planning ahead makes it manageable as I can prepare for it and set the money aside.
For the smaller things, I look at my expected income and upcoming payments and decide if I want to and more importantly NEED to spend that money. Would it be more sensible to keep it back for another day? If the answer is yes, that’s what I do.
Telling each penny where to go.
So where does everything else end up? This is the stage in a budget where many people falter. They know their outgoings are covered so what more is there to worry about? In fact, this is a key point that Dave Ramsey highlights over and over. If you don’t tell your money where to go it will disappear.
If you are looking to save, use this “extra money” to save, if you are looking to pay off debt this is where to place your focus!
Once my account reaches £500 I have to tell the rest of my income where to go. For me, a small amount goes to savings. Currently, at time of writing, I am building my emergency fund so this is my focus right now. When this is complete this money will go straight to debt payments. For this I will use the debt snowball method, which is a topic for another post.
I’m incredibly excited for the day when I can change my budget entirely, moving from debt payments to investment and savings. It’s a long way off at the moment but I will be sure to share that change with you when it happens!
Budgeting can be overwhelming when you are first beginning your financial journey. The best first step to take is to note down as much as you can and open your eyes to what is going on with your money. Where is it coming from and where is it all going?! When beginning a budget use a simple system that suits you to get started and make your way towards financial freedom!
You can find a fantastic in depth guide with more advice on writing a budget over on themoneyfreak.co.uk.